Auto Worker Wage Gap Is Not THAT Big

There’s been a lot of bluster about how the Detroit automakers need to slash wages so that they’re at parity with what Toyota (TM) and Honda pay their American workers. You hear the number $73/hour bandied about a lot, though everyone seems to know that this it’s. At the Times, David Leonhardt has done the best job we’ve seen examining the components of this number:

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighbourhood of $45 an hour, and most of the gap stems from their less generous benefits.

So there’s still a gap, and this doesn’t totally end the story. As Megan McArdle recently pointed out, it’s not so easy to neatly separate current employee wages from retiree payments, because current employees accepted their wages on the condition that their union brethren continue to get a certain level of benefits. But the actual gap between GM (GM) or Ford (F) employees on the line and Toyota employees on the line isn’t so huge, and it certainly isn’t a good explanation of why Detroit is lagging so horribly.

Another misconception people have is that auto workers are just button pushers, who shouldn’t be paid much at all. That’s just false. There are robots and machines on the shop floor, but they do the work of robots and machines. Humans do the human work, which involves solving problems, fixing errors, and other tasks that involve more than just being bored and pushing a button.

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